The preceding two columns in this series discussed buzzwords associated with tools to help evaluate your company and improve profitability.
Examples of the former include "benchmarking," "best practices," "deaveraged profitability," and "shareholder value analysis", and of the latter, "activity value analysis," "total quality management," and "re-engineering."
This installment reviews the buzzwords currently associated with approaches to managing a company. Some of these phrases are particularly "hot" at the moment. They also are among the most misinterpreted and misapplied concepts.
Management Tools
Many of these "new" terms repackage well-established concepts that have been in use by strategists for many years.
Joseph Juran was recently quoted concerning the coining of one buzzword. He said, "We have situations where some people want to be on top of a hill. Alas, every hill has a king. What is more logical than to create a hill?"
Or, we might ask, a buzzword?
With that caveat, this column reviews a selection of management tools that can lead to fundamental change within a company: teaming, empowerment, corporate transformation; learning organizations; and virtual corporations.
Teaming
At first mention, teaming often seems like an apple-pie-and-motherhood concept that should win universal approval. in fact, when effectively introduced, teaming is a bottom-line, performance-focused approach to doing business.
In their recent book on the topic, Jon Katzenbach and Doug Smith present a concise definition: "A team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and approach for which they hold themselves mutually accountable."
For corporate bankers today, the value of teams for meeting sales and profit targets should be readily apparent. For example, with loan growth flat, banks are increasingly turning to noncredit, fee-based products for their profit.
The relationship manager must of necessity interact more closely than ever with specialists in corporate finance, cash management, trust, and other product areas.
A few leading-edge corporate bank managers are also assessing the value of a team approach for managing loan portfolios and off-loading nonessential tasks from the relationship manager to junior bankers and administrators.
When successfully carried out, teaming does not mean that people yield their individual responsibilities. Rather, the political barriers between employees based on rank and seniority break down, allowing a greater focus on customer needs.
One note: Without team-based performance goals and, most probably, team-linked incentive compensations, teaming will not produce the dramatic results that are possible through cooperation and mutual support.
Empowerment
Few managers will admit that they do not want to empower their employees to take on more responsibility. Nonetheless, the empowerment movement challenges corporate management in some ways that are threatening to traditional managers.
True empowerment requires that management trust its people and, within bounds, give them the opportunity to make mistakes as well as to succeed.
Empowerment pushes down decision-making to lower levels of an organization. If management does not feel comfortable pushing more responsibility down, why not? Do employees have inadequate skills or training? Should they be replaced? Or is "tradition" causing the company to be managed in suboptimal ways?
Often, management employs cumbersome processes and centralized decision-making rather than empowerment.
Companies that successfully increase employee responsibility are more efficient, more flexible, and ultimately more responsive to customers. Not incidentally, empowered companies are also usually much more pleasant places to work - for employees at all levels.
Corporate Transformation
Mr. Juran's comment about creating hills is particularly relevant to the catchall phrase - corporate transformation.
Broadly, it means that a company is instituting many of the management reforms discussed in past columns, including activity value analysis, benchmarking, and empowerment.
The real value inherent in this phrase is that it forces a company to consider itself as a dynamic environment, subject to constant change. Transformation is continuous.
As is evident at IBM and General Motors, and as is becoming more apparent to many banks, self-satisfaction in the face of success leads to mediocrity and the threat of extinction. In the case of many financial services companies, extinction means reduced market share and/or acquisition.
Learning Organizations
MIT's Peter Senge is the best known proponent of the "learning organization." He presents a systematic approach for evaluating and changing a company.
As he describes it, five "component technologies" are required to create learning organizations:
* First, systems thinking - the ability to see the connections and patterns within an organization.
* Second, personal mastery - in effect. the continuous improvement of the individuals within an organization.
* Third, mental models - an understanding of the assumptions and traditions that guide an organization.
* Fourth, building shared vision - presenting a vision of the future that guides and inspires the organization.
* Fifth, team learning - stressing the importance of teams.
Thinking of a company as a learning organization stresses its dynamism, the importance of empowerment and development of employees. Implicit in this concept is the need for a leader who encourages the ongoing reinvention of his company.
Virtual Corporations
A recent article in INC. magazine describes the approach one entrepreneur used in funding a kayak company. With no employees other than himself, he developed an alliance with a manufacturer, a designer, and dealers.
His controller was an outside accountant; his legal staff an outside attorney; and his financial consultant, a local banker.
That example of a business alliance typifies what is meant by a virtual corporation. Creating a virtual corporation allows a company to do more with fewer employees and to concentrate on what the company does best - rather than trying to spread limited resources, capital, and capabilities too thin.
As a professor quoted in that article said: "Your success [as a virtual corporation] is based on keeping tight control over your area of expertise - then subcontracting everything else out. . . . The key is to keep overhead low, own as few resources as possible, and keep productivity high."
If this concept seems close to outsourcing, it is. Fortunately, banks have begun to act on the opportunities available to subcontract activities where they lack expertise or add little value, both in staff and operations areas.
The point of this approach is to let companies concentrate on aspects of a business where they can differentiate themselves.
Outsourcing technology is only the first step in taking advantage of the concept of the virtual corporation. Many banks will certainly continue to "disinvent" themselves, that is, to consider whether they can obtain more services from vendors.
For example, many banks spend a lot on internal training staffs when using outside specialists to teach specific subjects would serve them better.
Investor relations, advertising, and many aspects of the personnel function - from pension management to payroll processing - can also be outsourced. Even some core sales activities, such as telemarketing, can be bought rather than being developed internally.
Banks are often burdened by their history and their established business approach. The "clean sheet" approach could motivate management to challenge itself, question some of its basic tenets, and act.
Mr. Wendel is a vice president at Mercer Management Consulting in New York. This is the fourth article of a series.
